In Market X, the External Benefit of Consumption Is $5

question 184

Multiple Choice

In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:

• A) a tax of $5 in Market X and a subsidy of $10 in Market Y.
• B) subsidizing both markets.
• C) taxing Market Y and subsidizing Market X.
• D) taxing both markets.

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Definitions:

Negative Externality

A cost that is suffered by a third party as a consequence of an economic transaction.

Extravagant Consumption

The act of spending on luxury and expensive goods and services in excess of one's basic needs, often as a display of wealth.

Affluent Professionals

Individuals with high income and educational levels, often working in professions that require advanced degrees.

Everyday Uses

The common or routine utilizations of objects, technologies, or insights in daily living.